A cynical commentary about developments in the South African financial markets and the incomprehensible activities and pronouncements of bureaucrats and politicians.

Friday, 21 July 2017

WHERE ARE THE CROCODILES WHEN YOU NEED THEM?

The big
market theme continues to be the weakening US dollar. And yet the US share
markets are at record highs. For the “quants geeks” who believe that maths can
help explain price movements, the problem of indices being dominated by a few
shares because of their absolutely huge market capitalisations, is a nice
discussion point over their quinoa salad and herb tea. The JSE is badly
affected by this problem with the added twist that many of the really big constituent
shares are listed and priced offshore and so the rand exchange rate is nearly the
sole local effect.

Who would
have imagined that our market indices would also be testing new highs amidst
the growing evidence about how corrupt, incompetent and “owned” our government
has become?Part of the latest surge
will be due to this week’s unexpected decision by SARB to drop the repo rate by
25bp. Inflation, they claim, is under control. Prices now are just 5% higher
than a year ago? Hmm. Not from where we are standing chaps. But perhaps you are
not a beer drinking Durban city ratepayer who likes a braai at the weekend.

Like Pooh-Bah
in the Mikado, our smartly costumed Fin Min has a little list. Reportedly our
state owns around 700 entities, some of which could be sold to raise cash. He
will however need to find buyers with money who don’t kick the tyres too hard
or look under the bonnet. Keep an eye on the Telkom share price. If the fellows
in Pretoria put their full 40% holding on offer, it won’t hold up that well and
a near monopoly business which then won’t be state controlled might present a bargain.

It’s more
than a year since the majority of British voters indicated that they really
didn’t need or want the extra layer of bureaucracy that being a member of the
European Union imposed on them. They instructed their government to “…please
take Great Britain out of the EU and restore our sovereignty”. Note they did
not ask it to tamper with the essence of intranational agreements: namely the
ease of doing cross border deals and business with a minimum or red-tape and
regulation. However, the so-called Brexit decision appalled those other UK
citizens who didn’t think democracy should work that easily and feared that
flows of “free stuff” in their direction would dry up.Their opposition has been amazingly effective
with foolish concepts such as “Hard Brexit” and other handy hashtags. Already
some financial businesses are said to be moving their offices from the City. Messy
and unwarranted.

Eskom did
finally release their results. For those who chose not to download the 7MByte
file, the short-form results in the press[1]
offered financial statements condensed to a terse 35 lines. To be fair though,
they did admit that the independent auditors had issued a qualified opinion and
so Eskom was probably rather embarrassed about the numbers. Another section
misleadingly headed “Governance” used nine paragraphs to list the movements of
directors and senior executives during the year. At times, the hallway at
Megawatt Park must have resembled the wildebeest migrations on the Maasai Mara.
The section describes how CEO Mr Molefe departed then returned to and then
again left the corner office at the behest of the board. It chooses to ignore
his very public resignation letter. Nor does it explain the fancy footwork with
the rules of the Eskom Provident Fund. Old timers in the bond market will
fondly remember when Eskom’s management was so good that the parastatal’s long-dated
bond yield enjoyed a deserved 50 basis point discount to the government’s
equivalent instruments. Eskom was a quiet dependable provider of some of the
world’s cheapest electricity with a quaint attitude towards consumers who did
not pay.

Even now at
the close of the Super 18 season the shortcomings of the format are ever
present. Just a week after beating the Sharks here in Durban the Lions are
hosting them in a playoff at Ellis Park. That’s an unfortunate development and
there are other oddities elsewhere in the antipodes. Has anyone else noticed
how drab The Open at Royal Birkdale seems? Cold too.

James
Greener

Friday 21st
July 2017

[1] The JSE is about to scrap
the rule that compels listed companies to publish notices in the newspapers. Is
the transition to electronics so far advanced that companies can safely ignore
newspaper readers? Shame.